For broker/dealer use only. Not for use with the public. INVESTMENT PRODUCTS: NOT FDIC INSURED NO...

For broker/dealer use only. Not for use with the public.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


Before you act on your decision, remember that, first and foremost, you are obligated to act in the best interests of your client or prospective client in all suggestions you provide to them on behalf of their investments or financial situation. As you know, fee-based accounts may not be suitable for all investors. Before transitioning any existing client or prospect into a fee-based account, you, as the Advisor, must ensure that this type of arrangement is appropriate for your client based on their investment objectives, time horizon, risk tolerance, trading history, and overall economic situation.

IMPORTANT INFORMATION


POINT AND SHOOT: EVOLVING YOUR PRACTICE

THE CHALLENGE

Evolving your business model

THE OPPORTUNITY

While no business model is right for everyone, there are many advantages to a fee-based practice.

HOW LEGG MASON CAN HELP

Step-by-step approach to building a business plan for the transition and clear actions steps and takeaways.


Build a business that fits your life…

Instead of a life that fits your business!

SET A MINIMUM

Limit the number of clients

• Work/life balance: Servicing C and D level clients threatens your ability to have a life outside of work and prevents you from appropriately servicing your larger clients

• Ability to systematize: If you have too many clients, it will be harder to systematize. Without systems in place, you will lose efficiency, time and money

Set a minimum

• Income: With fewer clients you need a minimum in order to maintain income

• Differentiation: Setting a minimum tells clients you are committed to serving them and careful about the new clients you accept


SET A MINIMUM


SET A MINIMUMTo account for time for prospecting, managing your business and other activities, you may need to have fewer clients with a higher minimum – or hire staff to handle those activities.

AUM Goal

• Revenue Goal - $1,000,000

• Average Annual Fee Assumption – 1%

• Total Required AUM - $100 million

Target Number of clients

• 46 weeks x 45 hours per week = 2,070 total work hours/year

• Meet with each client 4 times/year requiring 12 hours of time (including preparation and servicing)

• 2,070 hours ÷ 12 hours per client = 173 clients you have time for

How much do those clients need to invest for you to manage $100 million?

– $100,000,000 divided by 173 clients…

…$578,034 minimum


SET A MINIMUMTo account for time for prospecting, managing your business and other activities, you may need to have fewer clients with a higher minimum – or hire staff to handle those activities.

AUM Goal

• Revenue Goal - $500,000

• Average Annual Fee Assumption – 1%

• Total Required AUM - $50 million

Target Number of clients

• 44 weeks x 45 hours per week = 2,070 total work hours/year

• Meet with each client 4 times/year requiring 12 hours of time (including preparation and servicing)

• 1,980 hours ÷ 12 hours per client = 165 clients you have time for

How much do those clients need to invest for you to manage $50 million?

– $50,000,000 divided by 165 clients…

…$303,030 minimum


You will need to consider how long it will take to complete the process of transitioning your practice.

CREATE A TRANSITIONING TIMELINE


CREATE A TRANSITIONING TIMELINETransition Timeline Worksheet: annual, monthly, weekly goals

Annual transition figure

• Revenue Goal = $1,000,000

• Average Annual Fee Assumption (excluding manager fee) – 1%

• Total Required AUM – (goal ÷ by fee) = $100,000,000

• Average AUM per Client Assumption - $578,034 (from previous example)

• Annual Transition Figure (based on a total of 173 clients)o 5 Years: 35 clients per year

o 2 Years: 87 clients per year

o 1 Year: 173 clients per year

Conversion Rate

• Weekly/Monthly Conversion Rate (clients per year/46 weeks x 4 weeks)o 5 years = approximately 1 client/week, 3 clients/month

o 2 Years = approximately 2 clients/week, 8 clients/month

o 1 Year = approximately 4 clients/week,16 clients/month


CREATE A TRANSITIONING TIMELINETransition Timeline Worksheet: annual, monthly, weekly goals

Annual transition figure

• Revenue Goal = $500,000

• Average Annual Fee Assumption (excluding manager fee) – 1%

• Total Required AUM – (goal ÷ by fee) = $50,000,000

• Average AUM per Client Assumption - $303,030 (from previous example)

• Annual Transition Figure (based on a total of 165 clients)o 5 Years: 33 clients per year

o 2 Years: 82.5 clients per year

o 1 Year: 165 clients per year

Conversion Rate

• Weekly/Monthly Conversion Rate (clients per year/46 weeks x 4 weeks)o 5 years = approximately 1 client/week, 3 clients/month

o 2 Years = approximately 2 clients/week, 8 clients/month

o 1 Year = approximately 4 clients/week, 15 clients/month


Utilize internal broker/dealer systems to analyze your book

SEGMENT YOUR BOOK

• Divide clients into two categories, qualified and non-qualified*

• Analyze Quantitative Factorso Number of clientso Current assets under management per cliento Product mix per cliento Annual revenue per cliento Total investable assets


SEGMENT YOUR BOOK

Qualitative Factors:

• Do they follow my advice without question?

• How often do they refer?

• What type of wealth management potential do they have? o Retirement planning

o Family needs planning

o Credit and lending

o Business succession plans

o Executive compensation management

o Insurance and liability management

o Estate planning


The next step in your plan is to prioritize clients for transitioning.

PRIORITIZE CLIENTS FOR TRANSITIONING

Prioritize clients for transitioning• Prioritize based on segmentation of

your book and based on the tiering of clients related to their potential for a fee-based relationship

• Create a detailed plan of which clients you are going after weekly, monthly, annually that aligns to your transitioning timeline

‘Culling’ your book• Consider that not all of your clients will

come on the journey with you

• The sooner you think about the clients that don’t fit into your business model, the better your work/life balance and the better you can serve your top clients

• The process of ‘culling’ your book is similar to pruning a tree: by culling or pruning your least productive clients you will be able to increase the productivity of your practice and have the time to grow and replicate your best clients


The number one fear of financial advisors when transitioning their business to fee-based is the potential impact on revenue.

PLAN FOR INCOME NEEDS

• Understand how the fee schedule is paid out

• Analyze your current revenue per client and determine how that revenue would be impacted with a transition to an advisory platform

• Create income projection/cash flow plan aligned to your transitioning timeline, book segmentation and prioritization

Tip: Return on Assets (ROA) CalculationROA = Commissions ÷ Account Size


With a fee-based practice, you’ll not only spend more time on fewer clients, you’ll have increased service expectations.

EXPAND YOUR KNOWLEDGE

• Consider practice/staffing operations

• Line up sources of knowledge/Industry Advisory Board (3-5 people, including internal specialists and wholesalers)

o Purpose of Board is to provide expertise and guidance on the following:

• Your firm’s advisory platforms• Portfolio construction• Research• Consulting skills• Wealth Management services

• Gain working knowledge of advisory platforms• Gain working knowledge of any tools your

broker/dealer offerso Profiling toolso Asset allocation toolso Analytical toolso Investment proposal toolso Financial planning toolso client review tools


An important element in building your transition plan is to spend time developing a compelling value proposition that sets client expectations and differentiates you.

DEVELOP YOUR VALUE PROPOSITION

Key Components:

• Mission statement/elevator speech

• Your approach to working with clients (client experience)

• Investment management process

• Wealth management services

• Service offering


Positioning your new business model with existing clients:

• Articulate why you are changing your business model

• Differentiate your previous approach from your new fee-based approach

• If they are interested, then you take them through the entire value proposition

DEVELOP YOUR VALUE PROPOSITION

Sample openings

“I am in the process of evolving my business model to a fee-based model. As the industry and my practice have evolved, I have found that many of my best clients are looking for comprehensive wealth advisory services. My plan is to limit the number of clients in my practice so that each of them can have the best possible experience. Let me explain my new process and services and how I hope we can evolve our relationship…”

“Due to innovations in technology and service capabilities, I have evolved my business model, which will provide you with a “new and improved” single-pricing model and expanded wealth advisory services. My plan is to limit the number of clients in my practice so that each of them can have the best possible experience. Let me explain my new model and services and how I hope we can evolve our relationship…”


Investing time in understanding the key features of your firm’s advisory platforms will make it easier to be confident in your recommendations later.

MARKET YOUR NEW SERVICES

Marketing Components• Verbal execution• Brochure• FA website• LinkedIn profile

Marketing Process• Phone call (Use “Sample

Conversational Opening”)• In-person meeting

o Full articulation of value proposition using brochure

o Enhanced discovery process


Inherent in a fee-based relationship is the process of providing advice. Fee-based advisors employ a consultative advice model when working with their clients.

FORMALIZE YOUR CONSULTATIVE PROCESS

Components of a consultative process:

• Setting goals and guidelines

• Determining asset allocation

• Selecting investment managers and vehicles

• Managing and monitoring client accounts

• Providing ongoing personal service


Once you have completed all of the preceding steps, your next step is to begin the transitioning process.

BEGIN TRANSITIONING

• Utilize the resources we have provided (brochure, worksheets) and leverage tools and resources available at your firm throughout the transitioning process


ACTION STEPS

Develop a transition business planStep 1: Set a minimum for your practice

Step 2: Create a transitioning timeline

Step 3: Segment your book

Step 4: Prioritize clients for transitioning

Step 5: Plan for income needs

Step 6: Expand your knowledge

Step 7: Develop your value proposition

Step 8: Market your new services

Step 9: Formalize your consultative process

Step 10: Begin transitioning

“A journey of a thousand miles begins with a single step.”

—Lao-Tzu


Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Legg Mason Inc. and its affiliates do not provide asset allocation advice.

All investments involve risk, including possible loss of principal. Past performance is no guarantee of future advice.

IMPORTANT INFORMATION

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• A broad mix of equities, fixed income, alternatives and cash strategies

• A diverse family of specialized investment managers, each with its own independent approach to research and analysis

• Over a century of experience in identifying opportunities and delivering astute investment solutions to clients

The Advisor Partnership Program (TAPP)® is Legg Mason’s landmark value-addedoffering, featuring a wide range of multidimensional workshops and seminars thatempower financial advisors to build successful practices and educate their clients.

TAPP delivers value in three areas of importance to advisors: branding and marketing,business management, and client needs. Branding and Marketing Your Business offerscomprehensive resources for developing a value proposition and leveraging social mediaand the wired world for communication, brand building and client acquisition. RunningYour Business showcases tactical tools and real-life insights into practice management.Addressing Client Needs provides in-depth materials to help advisors engage and informtheir clients on a variety of topics.

For broker/dealer use only. Not for use with the public. The Advisor Partnership Program (TAPP)® and Our Experience. Your Potential are registered trademarks of Legg Mason Investor Services, LLC.

© 2015 Legg Mason Investor Services, LLC. Member FINRA, SIPC. Legg Mason Investor Services, LLC is a subsidiary of Legg Mason, Inc. 6/15 FN1512568

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